IDCW stands for Income Distribution cum Capital Withdrawal. It’s the new name for what was earlier called the “dividend option” in mutual funds.
It means the fund gives you payouts from your investment—part of it comes from earnings (like interest or profits) and part from your invested capital.
Why the Name Changed?
Earlier, the term “dividend” gave the impression that only profits were being distributed. But in reality, payouts could also include a part of your invested money. So SEBI renamed it to IDCW to reflect this more clearly.
Types of IDCW Options
- IDCW – Payout
- You get cash payouts whenever the fund announces a distribution.
- Good for those who want regular income, like retirees.
- IDCW – Reinvestment
- Instead of giving you cash, the fund reinvests the payout into more units of the same fund.
- Your investment grows without extra deposit.
- Growth Option (for comparison)
- No payout at all.
- All earnings are reinvested, and you only gain when you redeem units.
Real-Life Example
- You invest ₹1,00,000 in an IDCW mutual fund.
- NAV (unit price) is ₹10, so you get 10,000 units.
- Fund declares IDCW of ₹0.50 per unit.
- You receive ₹5,000 as IDCW payout.
- After payout, the NAV drops to ₹9.50 per unit.
Why? Because the fund paid from its total pool, which includes your money too.
Benefits of IDCW Option
| Benefit | Why It Helps |
|---|---|
| Regular income | Useful for retirees or those needing cash flow |
| Flexibility | Choose payout or reinvestment |
| No need to redeem units | You keep your investment intact |
Things to Keep in Mind
- IDCW is not bonus money – it may include part of your own capital.
- NAV drops after payout.
- Tax applies on IDCW received:
- Taxed at your slab rate (no more dividend exemptions)
- Not ideal for long-term compounding like Growth Option
Should You Choose IDCW or Growth?
| Feature | IDCW Option | Growth Option |
|---|---|---|
| Payout | Yes, from time to time | No |
| NAV after payout | Drops | Keeps growing |
| Tax impact | Taxed each time you receive | Tax only when you sell |
| Best for | Income-seeking investors | Long-term wealth builders |
